Opec+ supply cuts could erode oil inventories in the rest of this year, potentially driving prices even higher, before economic headwinds limit global demand growth in 2024, according to the International Energy Agency (IEA).

 

Tighter supply driven by oil output cuts from Opec (The Organization of the Petroleum Exporting Countries) and its allies (together known as Opec+), and rising global demand have underpinned a rally in oil prices, with brent crude hitting highs of over $88 a barrel this week, the highest since January.

 

The IEA said if Opec+ current targets are maintained, oil inventories could draw by 2.2 million barrels per day (bpd) in the third quarter and 1.2 million bpd in the fourth, "with a risk of driving prices still higher". 

 

"Deepening Opec+ supply cuts have collided with improved macroeconomic sentiment and all-time high world oil demand," stated the Paris-based energy watchdog in its monthly oil market report.

 

The Opec and its allies began limiting supplies in late 2022 to bolster the market and, in June extended supply curbs into 2024. 

 

The IEA said that in July, global oil supply plunged by 910,000 bpd in part due to a sharp reduction in Saudi output. 

 

Refinery throughputs are set to reach a summer peak of 83.9 mb/d in August, up 2.4 mb/d since May and 2.6 mb/d higher than a year ago. The increase in refined product output has failed to ease product market tightness, pushing gasoline and middle distillate cracks to near record-highs. 

 

High sulphur fuel oil cracks provided further support to margins, which pushed above 2022 levels in July.

 

Interestingly, Russian oil exports held steady at around 7.3 mb/d in July, as a 200 kb/d decline in crude oil loadings was offset by higher product flows. Crude exports to China and India eased m-o-m but accounted for 80% of Russian shipments. 

 

Higher oil prices, combined with narrowing discounts for Russian grades, pushed estimated export revenues up by $2.5 bn to $15.3 bn, $4.1 bn below year-ago levels, it stated.

 

Axcording to IEA, next year, demand growth is forecast to slow sharply to 1 million bpd, the IEA said, citing lackluster macroeconomic conditions, a post-pandemic recovery running out of steam and the burgeoning use of electric vehicles. 

 

"With the post-pandemic rebound largely completed and as multiple headwinds challenge the OECD's outlook, oil consumption gains slow markedly," said the IEA, referring to Organisation for Economic Co-operation and Development nations.

 

The IEA's demand growth forecast is down by 150,000 bpd from last month and contrasts with that of Opec, which on Thursday maintained its forecast that oil demand will rise by a much stronger 2.25 million bpd in 2024.  

 

On the global economic outlook, IEA said it remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade.    

 

The IEA expects demand to expand by 2.2 million bpd in 2023, buoyed by summer air travel, increased oil use in power generation and surging Chinese petrochemical activity. Opec sees a rise of 2.44 million bpd.-TradeArabia News Service